Senate Panel Votes to End U.S. Giants in Mortgages

By REUTERS

May 15, 2014

A Senate panel approved legislation on Thursday to wind down Fannie Mae and Freddie Mac and reshape the mortgage finance system, but sparse support among Democrats means the measure is unlikely to become law.

The Democratic-controlled Senate Banking Committee approved the bill in a 13-to-9 vote, with only half of the panel’s 12 Democrats voting in favor.

The Senate majority leader, Harry Reid, Democrat of Nevada, is unlikely to bring the measure to a vote on the Senate floor, according to Senate aides who said it needed wider support among Democrats.

The vote is a setback for the Obama administration, which helped on the legislation and worked to build support for it.

“This bill represents our effort to draft the final chapter of financial reform by addressing the most significant unresolved issue from the financial crisis — the housing finance system,” Senator Tim Johnson, Democrat of South Dakota, said before the vote.

The bill would replace the government-run Fannie Mae and Freddie Mac with a new industry-financed agency that would offer a government guarantee on mortgage bonds, but one that would kick in only after private interests shouldered big losses.

Many liberal Democratic senators and housing advocates raised concern that the bill would drive up the cost of mortgages without giving enough attention to ensuring that all creditworthy borrowers had access to loans. Democrats and Republicans also voiced worries it would give big banks too much control of the lending business.

Even if the full Senate were to approve it, it is not expected to pass the Republican-led House of Representatives.

For years, Democrats and Republicans have said Fannie Mae and Freddie Mac should be abolished, but lawmakers face tough choices deciding how to attract enough private capital to ensure that Americans retain broad access to home loans.